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shalab
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Opening the discussion on portfolio sizes - there are a few ways to go about it.

 

Mohnish has gone from 5% positions to concentrated portfolio of four stocks.

Ericopoly has one position only

Munger has three- four positions in djco

Biglari has a concentrated portfolio with CBRL/BH as the main ones as well

 

It would be good to hear from the current super investors such as gio, Sanjeev, twacowfca, valuecfa, Moore, uccmal, tariq et.al ( I am sure I left a few out - error of omission, not of commission... )

 

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I just graduated college recently and I am trying to come up with a great portfolio.  Initially,  I thought I could spot easy 50 cent dollars.  However, after looking at numerous net-nets and low multiple stocks and finding most of them uninvestable,  I am trying to develop a portfolio as follows:

 

50% high quality companies like BRK, MKL, LRE, NICK, MTB, MDLZ, RI.PA.  Probably weighted towards BRK, MKL, and LRE.

 

30% special situations that I feel comfortable with such as HII, JPM, BAC,

 

20% cash to take advantage of new opportunities.

 

I'd love to hear others thoughts.

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Opening the discussion on portfolio sizes - there are a few ways to go about it.

 

Mohnish has gone from 5% positions to concentrated portfolio of four stocks.

Ericopoly has one position only

Munger has three- four positions in djco

Biglari has a concentrated portfolio with CBRL/BH as the main ones as well

 

It would be good to hear from the current super investors such as gio, Sanjeev, twacowfca, valuecfa, Moore, uccmal, tariq et.al ( I am sure I left a few out - error of omission, not of commission... )

 

Thanks for starting the thread.

 

Will be most interested in hearing responses.

 

Also I am curious as to how how they establish starting & subsequent positions e.g if you re like Gio who wants to accumulate initial 7% of fairly valued great position with idea to double down on  position to 15%-for instance do you order all 7% at once, or in 1 or 2% (assuming a sizeable portfolio i.e $9 commission per trade is not going to make a difference)

 

Personally I have been using a modified version of strategy expressed by Beerbaron a while ago:

 

 

“If it's a great company for a good price: buy in blocks of 5-10% of portfolio if the price drops an additional 15% add another 5-10% up until 25%.

If it's a good company at a great price: I buy 5% of my portfolio and not more.” Beer Baron

 

For my portfolio I add in 2.5% at a time or a bit less because I am a chicken and like another chance to add in later. I sleep well. Tend to hold on to too much cash (which I would like to get down to 20%)

 

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I personally don't have any rules and just look at it organically.  I bear in mind that concentration is what gives you dramatic outperformance, but try to keep risks in mind.  I've had upwards of 40-50% in one position, and currently have 2-3 > 20% positions.  That being said, I'll probably have a portfolio similar to Gio's at some point (or at least a large portion of my port similar to Gio's), once my ideas play out (e.g., AIG, BAC, etc.).

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I personally don't have any rules and just look at it organically.  I bear in mind that concentration is what gives you dramatic outperformance, but try to keep risks in mind.  I've had upwards of 40-50% in one position, and currently have 2-3 > 20% positions.  That being said, I'll probably have a portfolio similar to Gio's at some point (or at least a large portion of my port similar to Gio's), once my ideas play out (e.g., AIG, BAC, etc.).

 

Our portfolio is peculiar. As previously mentioned since 2006, almost all of our assets have been in different proportions of three companies: FFH, BRK and LRE that we understand very well.  All three are run by awesome owner operators.  Like Giofranchi, we have a strong preference for partnering with great owner operators who treat shareholders as they would like to be treated were the situation reversed.

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  • 2 weeks later...

I think there might be a caveat here that some are not considering.  If the person is an individual their savings every year could be a significant contributor to their investment account.  If this were the case they might take a 15% position but know in a year it would only really be 10%...

 

So maybe we should mention the general size of the portfolio?

 

I will take a 20% position - but my savings come in regularly so I know I will have cash around to buy another big position in a few months...

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It would be good to hear from the current super investors such as gio, Sanjeev, twacowfca, valuecfa, Moore, uccmal, tariq et.al ( I am sure I left a few out - error of omission, not of commission... )

 

Shalab,

sorry! I don’t know how, but I missed this thread of yours!

I find it extremely interesting… but you made me laugh!! I am really not a good investor!! Surely, I am not in the league of Sanjeev, twacowfca, valuecfa, Moore, uccmal, tariq, racemize, PlanMaestro, ERICOPOLY, Beerbaron, biaggio, berkshiremystery, yourself, and others who constantly write on this wonderful board!

This is what I have written in a personal message to Bart this morning:

 

Just a few words about the way I invest my firm’s free cash: I tend to stick with a bunch of owner-operators that I think I understand well enough, just because it fits my personality and I feel quite comfortable with it. I am also very risk averse: right now I am keeping a lot of cash in usd and gold, I also want to be market neutral, so I am shorting the indexes.

Results, unfortunately, simply don’t care what I am comfortable with…! 2012 has been a terrible year: speculative stocks went up a lot, so I am losing money on my shorts, owner-operators went sideways at best, with FFH (by far my largest holding) that was down significantly from $410 to $350, so I am also losing money on my long positions, gold went nowhere and the euro appreciated on the usd, so I am losing money on fx as well… It really seems I got it completely wrong!!

Viceversa, a lot of traders on the board are booking spectacular returns: I remember ERICOPOLY who said a month ago he was up 100% for the year!

So, you see, on the board I just write about what I know, but that doesn’t mean it is the way to go, or even it has any usefulness at all…  :(

 

No, really, if you have the patience to bear with me, I’d really like to go on posting some thoughts on the board, because I enjoy the company of great investors!! But surely I am not one… not even a “do no harm” investor… “First, do no harm”: I am not even able to follow this basic and most important precept! :(

But I will get better very quickly, learning from all of you!  ;)

 

Thank you,

 

giofranchi

 

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Gio you re very humble.

 

biaggio,

I wish I were humble… unfortunately, I am just a realist!! ;D

 

You made a mistake above, I definitely do not belong on the list.

 

Whoever has the patience to hold a significant amount of cash today, and whoever has the discipline to follow BeerBaron quote on position sizing, I judge him/her to be a great investor. ;)

 

giofranchi

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It would be good to hear from the current super investors such as gio, Sanjeev, twacowfca, valuecfa, Moore, uccmal, tariq et.al ( I am sure I left a few out - error of omission, not of commission... )

 

Shalab,

sorry! I don’t know how, but I missed this thread of yours!

I find it extremely interesting… but you made me laugh!! I am really not a good investor!! Surely, I am not in the league of Sanjeev, twacowfca, valuecfa, Moore, uccmal, tariq, racemize, PlanMaestro, ERICOPOLY, Beerbaron, biaggio, berkshiremystery, yourself, and others who constantly write on this wonderful board!

This is what I have written in a personal message to Bart this morning:

 

Just a few words about the way I invest my firm’s free cash: I tend to stick with a bunch of owner-operators that I think I understand well enough, just because it fits my personality and I feel quite comfortable with it. I am also very risk averse: right now I am keeping a lot of cash in usd and gold, I also want to be market neutral, so I am shorting the indexes.

Results, unfortunately, simply don’t care what I am comfortable with…! 2012 has been a terrible year: speculative stocks went up a lot, so I am losing money on my shorts, owner-operators went sideways at best, with FFH (by far my largest holding) that was down significantly from $410 to $350, so I am also losing money on my long positions, gold went nowhere and the euro appreciated on the usd, so I am losing money on fx as well… It really seems I got it completely wrong!!

Viceversa, a lot of traders on the board are booking spectacular returns: I remember ERICOPOLY who said a month ago he was up 100% for the year!

So, you see, on the board I just write about what I know, but that doesn’t mean it is the way to go, or even it has any usefulness at all…  :(

 

No, really, if you have the patience to bear with me, I’d really like to go on posting some thoughts on the board, because I enjoy the company of great investors!! But surely I am not one… not even a “do no harm” investor… “First, do no harm”: I am not even able to follow this basic and most important precept! :(

But I will get better very quickly, learning from all of you!  ;)

 

Thank you,

 

giofranchi

 

 

Hang in there, Giofranchi.  Realize that the poster boy for success on the board, Ericopoly, was apparently down last year much more than you are down this year, but he hung tough with his conviction on his leveraged position on BAC options, recovering his losses and winding up with a nice net gain.

 

Best wishes,

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It would be good to hear from the current super investors such as gio, Sanjeev, twacowfca, valuecfa, Moore, uccmal, tariq et.al ( I am sure I left a few out - error of omission, not of commission... )

 

Shalab,

sorry! I don’t know how, but I missed this thread of yours!

I find it extremely interesting… but you made me laugh!! I am really not a good investor!! Surely, I am not in the league of Sanjeev, twacowfca, valuecfa, Moore, uccmal, tariq, racemize, PlanMaestro, ERICOPOLY, Beerbaron, biaggio, berkshiremystery, yourself, and others who constantly write on this wonderful board!

This is what I have written in a personal message to Bart this morning:

 

Just a few words about the way I invest my firm’s free cash: I tend to stick with a bunch of owner-operators that I think I understand well enough, just because it fits my personality and I feel quite comfortable with it. I am also very risk averse: right now I am keeping a lot of cash in usd and gold, I also want to be market neutral, so I am shorting the indexes.

Results, unfortunately, simply don’t care what I am comfortable with…! 2012 has been a terrible year: speculative stocks went up a lot, so I am losing money on my shorts, owner-operators went sideways at best, with FFH (by far my largest holding) that was down significantly from $410 to $350, so I am also losing money on my long positions, gold went nowhere and the euro appreciated on the usd, so I am losing money on fx as well… It really seems I got it completely wrong!!

Viceversa, a lot of traders on the board are booking spectacular returns: I remember ERICOPOLY who said a month ago he was up 100% for the year!

So, you see, on the board I just write about what I know, but that doesn’t mean it is the way to go, or even it has any usefulness at all…  :(

 

No, really, if you have the patience to bear with me, I’d really like to go on posting some thoughts on the board, because I enjoy the company of great investors!! But surely I am not one… not even a “do no harm” investor… “First, do no harm”: I am not even able to follow this basic and most important precept! :(

But I will get better very quickly, learning from all of you!  ;)

 

Thank you,

 

giofranchi

 

We are in the same category this year results have not been stellar for me. But remember it's not greed that drives the world but envy. Let Ericopoly be in a class on it's own and focus on partnering with the best managers. It's a very logic approach to hands off investing that I apply myself.

 

Here is to cheer you up, FFH has compounded money at 20% a year for 25 year, what are the odds that it was due to dumb luck? Pretty slim! You have great partners managing your money, just let them do what they are good at and wait for the good news.

 

BeerBaron

 

 

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This is why I'm almost through with this game.  My results are so lumpy it's driving me sick with emotional extremes.  Really, at this point I want it to be the last big score so I can think less about the markets.

 

In 2008 I was down 23% YTD at one point, but then finished the year up 20%.

In 2009 I was down 50% YTD at one point, but then finished the year up 84%.

In 2010 I finished up 20% on the year.

In 2011 I was down 35% YTD at one point (but it was down 50% from the April high so felt much worse).  I finished down about 25% on the year.

In 2012 I suffered a 35% decline in July from the March/April high

 

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This is why I'm almost through with this game.  My results are so lumpy it's driving me sick with emotional extremes.  Really, at this point I want it to be the last big score so I can think less about the markets.

 

In 2008 I was down 23% YTD at one point, but then finished the year up 20%.

In 2009 I was down 50% YTD at one point, but then finished the year up 84%.

In 2010 I finished up 20% on the year.

In 2011 I was down 35% YTD at one point (but it was down 50% from the April high so felt much worse).  I finished down about 25% on the year.

In 2012 I suffered a 35% decline in July from the March/April high

 

At least youre retired, if you lose sleep over those paper losse you can recuperate during the day :)

 

Seriously tough why are you still doing an all or nothing approach? I'm sure you have enough to live for the rest of your life. To paraphrase Munger: "I remember when we did not have money and it was worse then not earning a proper return"

 

BeerBaron

 

BeerBaron

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This is why I'm almost through with this game.  My results are so lumpy it's driving me sick with emotional extremes.  Really, at this point I want it to be the last big score so I can think less about the markets.

 

In 2008 I was down 23% YTD at one point, but then finished the year up 20%.

In 2009 I was down 50% YTD at one point, but then finished the year up 84%.

In 2010 I finished up 20% on the year.

In 2011 I was down 35% YTD at one point (but it was down 50% from the April high so felt much worse).  I finished down about 25% on the year.

In 2012 I suffered a 35% decline in July from the March/April high

 

At least youre retired, if you lose sleep over those paper losse you can recuperate during the day :)

 

Seriously tough why are you still doing an all or nothing approach? I'm sure you have enough to live for the rest of your life. To paraphrase Munger: "I remember when we did not have money and it was worse then not earning a proper return"

 

BeerBaron

 

BeerBaron

 

The all or nothing approach wasn't planned, it just sort of crept up on me.  I think Patton said something to the effect that the carefully prepared battle plans are just tossed aside once the shooting starts.  I admire the self discipline of those of you who only put 5% into your biggest idea.

 

It began when the AIG warrants had rallied to a peak for the year and BAC's were doing poorly on a relative basis.  Impulsively I decided that relationship would change after I read the Q3 CC transcript for BAC.  Since then the AIG warrants have declined modestly (7%) and the BAC warrants up in the mid-to-high-teens.  This gives me a bit of reason to think about flipping some back actually.

 

Once I had flipped the AIG warrants to BAC warrants I decided that I understood the long term future of BAC better than the long term future of MBI and DELL, so I flipped them too.  That's why I got so interested in MBI once it dropped -- but with the way the management was so angry at MBI I took it as a sign that they were worried so I didn't go back in.  DELL dropped and has since recovered.

 

So I don't know.  Maybe a little of AIG back again.  I really want to wait and see first with respect to the capital return plans for BAC.

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The fun thing about emotional biases is that you can manipulate them as much as they can manipulate you.  I keep this tiny position of the first stock I bought (complete nonsense) which is now down by 40%, with a nice red color.  So when other stuff goes down by 20% or 30% it doesn't seem to be that much.  Plenty other ways to abuse comparative bias.

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The fun thing about emotional biases is that you can manipulate them as much as they can manipulate you.  I keep this tiny position of the first stock I bought (complete nonsense) which is now down by 40%, with a nice red color.  So when other stuff goes down by 20% or 30% it doesn't seem to be that much.  Plenty other ways to abuse comparative bias.

 

My Roth IRA now has a "performance" feature where it will show me the asset levels at the end of every month/quarter/year going back for 10 years.

 

When down, I visit that page and try to focus on the fact that if I wasn't so aggressive in the first place from day one the amount I have left would be yet a fraction of that still.

 

The account at the end of October was up 15,000% over the past 10 years.  It can be down 50% and while most people wouldn't be able to take that lightly, they would be giddy to be able to say that they'd made 7,500% in 10 years.

 

This is actually the primary game I play on my mind to keep myself from having more discipline.

 

Right now I can take a breather because for the first 3 years the account actually declined quite a bit.  So improving the trailing 10 yr performance will get relatively easier for 2013,2014, and 2015.  By the time I get to June 2016, I'm just going to have to concede to myself that my 10 year compounding number will never improve from there forward.

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The account at the end of October was up 15,000% over the past 10 years.  It can be down 50% and while most people wouldn't be able to take that lightly, they would be giddy to be able to say that they'd made 7,500% in 10 years.

 

That does work with any meaningful impact? You'd still compare that 7500% to that 15000% and it would seem lower, right? What if, as now you only have one basic holding you'd make a portfolio chart showing potential future conservative portfolio value, i.e. 45000% in whatever year (it has to be a real estimate, of course). So when it goes down the potential for increase actually goes higher and the clear target remains. You're kinda anchored to the higher value.

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The account at the end of October was up 15,000% over the past 10 years.  It can be down 50% and while most people wouldn't be able to take that lightly, they would be giddy to be able to say that they'd made 7,500% in 10 years.

That does work with any meaningful impact? You'd still compare that 7500% to that 15000% and it would seem lower, right? What if, as now you only have one basic holding you'd make a portfolio chart showing potential future conservative portfolio value, i.e. 45000% in whatever year (it has to be a real estimate, of course). So when it goes down the potential for increase actually goes higher and the clear target remains. You're kinda anchored to the higher value.

 

Yes, the 50% drop is still really painful and annoying.  It works enough to remind me that it's part of the price to pay for the strategy.  Otherwise it's easy to get wrapped up in the loss itself and fixate too much on it.  Plus seeing the performance charted out with the ups and downs keeps the good times in perspective because every time I log into the Fidelity account I can pull up the graph and see the deep peaks and valleys.

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But remember it's not greed that drives the world but envy.

 

BeerBaron,

fortunately, I always try to keep in mind the diagram in attachment (which probably most of you already know), and I always try to “find lessons and inspiration in the success of others”, rather than “feel threatened by the success of others”. I have discovered that, compelling me to behave like the diagram suggests, helps me very much to avoid easily falling victim of envy.

I do not envy ERICOPOLY, even when he says he is up 15,000% over the past 10 years (ok, I know what you must be thinking now: that is a monstrous lie!!! ;D ;D ;D). Instead, I greatly admire him for his achievement and I have the utmost respect for him! I will go on reading every idea he posts, and I will try to learn from him as much as I can.

 

Here is to cheer you up, FFH has compounded money at 20% a year for 25 year, what are the odds that it was due to dumb luck? Pretty slim! You have great partners managing your money, just let them do what they are good at and wait for the good news.

 

Today I will be buying more FFH! ;)

 

Hang in there, Giofranchi.  Realize that the poster boy for success on the board, Ericopoly, was apparently down last year much more than you are down this year, but he hung tough with his conviction on his leveraged position on BAC options, recovering his losses and winding up with a nice net gain.

 

Best wishes,

 

twacowfca,

thank you very much! Your wisdom, counsel, and support are always precious and very much appreciated!

 

giofranchi

mindset_diagram.pdf

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fortunately, I always try to keep in mind the diagram in attachment (which probably most of you already know), and I always try to “find lessons and inspiration in the success of others”, rather than “feel threatened by the success of others”. I have discovered that, compelling me to behave like the diagram suggests, helps me very much to avoid easily falling victim of envy.

[\quote]

 

Great diagram! Thanks for posting. Hanging a copy next to my computer.

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  Investing is a probabilistic game. You can use whatever underlying parameter you want, e.g. Estimate of Intrinsic Value/ Price, FCF/price, or more sophisticated multiparameter approaches, but in the end, you are making a bet: if I buy stocks with a certain value of that parameter, I have an expectation of X% return with Y years. If markets were efficient, X% would always be the same as the market average. But they are not, so if you choose well the corners of the parameter space you invest in, you will beat the market.

 

  Graham, who was an accomplished writer, invented the Mr. Market and the margin and safety metaphors to dress  mathematics in a more palatable form and provide psychological support when things get hard. But all of value investing reduces to placing bets with the odds slightly in your favor. That's why nobody has invented a 100% safe procedure to avoid value traps, or why not all the stocks in the portfolio of the best investors beat the market. Things always work statistically, on average.

 

  Now, it is obvious that the most extreme the "statistical mispricing" of a stock, the larger your average returns. For instance if you buy the top 3 stocks with better intrinsic value/price ratio, the expected return will be 30%, the top 5, 25%, the best 25, only 15%, etc. If you include too many stocks, your returns will start to resemble those of the market.

 

  But remember that those returns are realized on average. The scatter in the performance of individual stocks are huge.  So if you are really good choosing stocks, like Eric seems to be, you will certainly have better returns if you concentrate everything on your best idea. But one day you may wake up broke because your company was killed by a Black Swan which was not foreseen by even such a smart board as this.

 

  That's why I guess that the absolute minimum is at least 4 companies  which have an extremely low risk of going belly up. Imagine that the risk for each of them is 1e-2, then the probability of all of them failing simultaneously (assuming there is no correlation, a big if) is 1e-8, almost negligible. Your average returns will be slightly lower, but the volatility will go down and you will know that it is almost impossible for you to lose all your investments. 

 

Having all your money in a single stock is like mooning the goddess Fate. It may work wonderfully for years, until it doesn't. Read Nassim Taleb's books. Not everybody likes his writing style, but he does know his math.

 

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That's why I guess that the absolute minimum is at least 4 companies  which have an extremely low risk of going belly up. Imagine that the risk for each of them is 1e-2, then the probability of all of them failing simultaneously (assuming there is no correlation, a big if) is 1e-8, almost negligible. Your average returns will be slightly lower, but the volatility will go down and you will know that it is almost impossible for you to lose all your investments. 

 

txitxo,

you always bring the scientist’s and the statistician’s point of view into the discussion, and for this I thank you, because every time it is very interesting! ;)

You said the absolute minimum is at least 4 companies, and I am curious: take, for instance, twacowfca’s portfolio of BRK, LRE, and FFH. Though presently not that much concentrated, I am sure I would sleep very soundly at night with such a portfolio! 3 stocks, not 4… How do you look at such a portfolio? Of course, my point of view is that BRK is a collection of 70 plus businesses, with a very large and diversified portfolio of stocks; the same is true for FFH, which is a collection of many insurance companies and possesses a diversified, very well protected, portfolio of stocks. So, intuitively I judge twacowfca’s portfolio to be much more diversified than it appears to be at first glance. Now, to my question: do you think that my intuitive judgement has statistical relevance, or that it is statistically flawed?

twacowfca, I know from your posts that you are much versed in statistics, what’s your thought on the subject?

Thank you,

 

giofranchi

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Hi Shalab, Just caught this thread. 

 

Roughly 50% Us financials:

 

In order BAC, AIG, JPM/WFC

 

25% FFH

 

25% other: SSW, RBS.pr.p, cfx-tse, and smaller residual positions. 

 

YTD gain: 30%. after losing 30% last year, so Am still down around 10% two years combined - the math is not precise, obviously. 

 

Only new stock this calendar year is AIG. 

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That's why I guess that the absolute minimum is at least 4 companies  which have an extremely low risk of going belly up. Imagine that the risk for each of them is 1e-2, then the probability of all of them failing simultaneously (assuming there is no correlation, a big if) is 1e-8, almost negligible. Your average returns will be slightly lower, but the volatility will go down and you will know that it is almost impossible for you to lose all your investments. 

 

txitxo,

you always bring the scientist’s and the statistician’s point of view into the discussion, and for this I thank you, because every time it is very interesting! ;)

You said the absolute minimum is at least 4 companies, and I am curious: take, for instance, twacowfca’s portfolio of BRK, LRE, and FFH. Though presently not that much concentrated, I am sure I would sleep very soundly at night with such a portfolio! 3 stocks, not 4… How do you look at such a portfolio? Of course, my point of view is that BRK is a collection of 70 plus businesses, with a very large and diversified portfolio of stocks; the same is true for FFH, which is a collection of many insurance companies and possesses a diversified, very well protected, portfolio of stocks. So, intuitively I judge twacowfca’s portfolio to be much more diversified than it appears to be at first glance. Now, to my question: do you think that my intuitive judgement has statistical relevance, or that it is statistically flawed?

twacowfca, I know from your posts that you are much versed in statistics, what’s your thought on the subject?

Thank you,

 

giofranchi

 

  Giofranchi, it is really difficult, if not impossible, to calculate probabilities of such extreme events (that's one of the main points of the Black Swan book). I am not talking about regular diversification, to reduce the volatility of your results. BRK and FFH are wonderful companies in that respect, very solid (a significant chunk of my portfolio is in FFH). I am talking about "Black Swans", things which would seriously affect the whole company. BRK is so big that it is difficult to think of something which would kill it and not kill most of the stock market simultaneously, but imagine a succession of unprecedented, freak weather events which bankrupt all the insurance companies in the world, or a problem with some of the subsidiaries which involves terrible lawsuits, or WB going nuts, etc.  In the case of FFH there was a Black Swan several years ago, with the concerted attack of the hedgies. Yes, there are institutions which are TBTF, but that doesn't mean their shareholders won't lose their shirts.

 

  3 or 4 companies? If the probability of failure per year is some small epsilon, let's say a few hundredths,  and you invest during ~50 years, being invested in 3 companies makes the probability of all of them failing at some point close to 1%. Having 4 or better, 5, starts to make that probability negligibly small. Of course assuming that their failure rate is not  correlated. BRK, FFH and LRE are correlated.

 

Don't get me wrong, the most likely outcome is that you own those three companies, nothing happens during decades and you grow rich, because you understand them well, don't get scared during crashes, and keep adding to them, etc. But there is a tail risk lurking there which is not so difficult to eliminate or at least to reduce enormously. You could add some of LUK, L, SHLD, BAM, Jardine Matheson, Pargesa, Bestinver, Fairholme or other good NA funds (Chou, etc.) to the mix, buying whenever you think it is a good entry point and you would probably have a very similar rate of return long term, and reduce the risk of a total blow up to almost zero (of course we could always get an asteroid hitting the Earth, a zombie epidemics, half of La Palma falling into the sea etc.).

 

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Don't get me wrong, the most likely outcome is that you own those three companies, nothing happens during decades and you grow rich, because you understand them well, don't get scared during crashes, and keep adding to them, etc. But there is a tail risk lurking there which is not so difficult to eliminate or at least to reduce enormously. You could add some of LUK, L, SHLD, BAM, Jardine Matheson, Pargesa, Bestinver, Fairholme or other good NA funds (Chou, etc.) to the mix, buying whenever you think it is a good entry point and you would probably have a very similar rate of return long term, and reduce the risk of a total blow up to almost zero (of course we could always get an asteroid hitting the Earth, a zombie epidemics, half of La Palma falling into the sea etc.).

 

Thank you! It is actually what I am doing. My worries rest much more on “the man at the helm leaving” risk, than some black swan kind of event that could make the company blow up. But the result is almost the same: a portfolio of 7 to 10 (maybe even some more, if I can find high quality) owner-operators.

 

giofranchi

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